Correlation Between Imperial Petroleum and Permian Basin

Can any of the company-specific risk be diversified away by investing in both Imperial Petroleum and Permian Basin at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Imperial Petroleum and Permian Basin into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Imperial Petroleum Preferred and Permian Basin Royalty, you can compare the effects of market volatilities on Imperial Petroleum and Permian Basin and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Imperial Petroleum with a short position of Permian Basin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Petroleum and Permian Basin.

Diversification Opportunities for Imperial Petroleum and Permian Basin

-0.31

Correlation Coefficient

Imperial Petroleum  Permian Basin

Very good diversification

The 3 months correlation between Imperial and Permian is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Petroleum Preferred and Permian Basin Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian Basin Royalty and Imperial Petroleum is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Imperial Petroleum Preferred are associated (or correlated) with Permian Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permian Basin Royalty has no effect on the direction of Imperial Petroleum i.e., Imperial Petroleum and Permian Basin go up and down completely randomly.

Pair Corralation between Imperial Petroleum and Permian Basin

Assuming the 90 days horizon Imperial Petroleum Preferred is expected to generate 0.34 times more return on investment than Permian Basin. However, Imperial Petroleum Preferred is 2.91 times less risky than Permian Basin. It trades about 0.19 of its potential returns per unit of risk. Permian Basin Royalty is currently generating about -0.24 per unit of risk. If you would invest  2,417  in Imperial Petroleum Preferred on March 29, 2024 and sell it today you would earn a total of  83.00  from holding Imperial Petroleum Preferred or generate 3.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Imperial Petroleum Preferred  vs.  Permian Basin Royalty

Imperial Petroleum

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Petroleum Preferred are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Imperial Petroleum may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Permian Basin Royalty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Permian Basin Royalty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Imperial Petroleum and Permian Basin

The main advantage of trading using opposite Imperial Petroleum and Permian Basin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Petroleum position performs unexpectedly, Permian Basin can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Permian Basin will offset losses from the drop in Permian Basin's long position.

The idea behind Imperial Petroleum Preferred and Permian Basin Royalty pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.